Every business owner should place a high premium on safeguarding their way of life against bankruptcy. You can accomplish this goal by using the advice in this article.
From the beginning…
- If you are a partner in a partnership, ask your fellow partners for indemnification with regard to the obligations of the partnership (this generally only applies to non-equity partners).
- Make sure you have a directors and officers (D&O) insurance coverage and an indemnity document (also known as an officer protection deed) with the necessary businesses if you are a company director.
- Get a professional indemnity insurance coverage and keep it in force for a period of seven years after you leave the company. If your company has a policy, thoroughly analyze it, paying specific attention to any unique restrictions and exclusions.
- Give no personal guarantees, especially if you are a director of a corporation.
- Purchase the family house in your spouse’s name, make the least possible contribution to the purchase, and make sure that any mortgage is in your spouse’s name so that they, and not you, are responsible for repayment.
- Make a superannuation contribution.
- Create a flexible trust.
- Purchase stock in a firm whose shares are held by a different business that serves as the trustee of a discretionary trust. As an alternative, purchase assets under your spouse’s name rather than your own.
- Spend as much of your money as you can on lifestyle costs so that your spouse’s income can be used to offset any mortgage payments or savings. Give your spouse any extra cash if there is any.
- Your personal loans (to your spouse, a trust, or a business, for example) and unpaid trust distributions (amounts that a trustee of a trust decides to distribute to you but are kept in the trust) are assets and are subject to claims from creditors. As few as possible.
- Don’t accept any inheritance! To ensure that your spouse and children, rather than you, receive the bequest, ask your parents to create a testamentary trust will.
If you own property and believe it is too late…
- When you have no creditors, take action to safeguard your assets.
- Transfer any assets you may have as soon as you can so that time begins to work in your favor. subsequently endure the repercussions, if any.
- Document the grounds for the transfer if you give assets to your spouse (or another person, corporation, or third party) (e.g. estate planning or tax planning).
- If you transfer assets and get paid in exchange for the transfer, you must confirm the worth of the transferred assets in order to determine their fair market value (for example, by having a valuation done).
- Keep track of any payment you get in exchange for transferred assets.
Superannuation: available to everyone
- Make sure you belong to a superannuation fund that is licensed.
- Establish a pattern of contributions to superannuation by making both concessional and non-concessional contributions, especially soon after obtaining a sizable sum of money (e.g. inheritance).
- Increase concessional contributions to get the most out of your tax benefits and reduce the amount of assets that are vulnerable to creditors’ claims.
Having an SMSF affects your superannuation.
- Instead of having individual trustees, your SMSF should have a corporate trustee. Since the trustee, not the individual members, owns the assets of the SMSF, there would be no need to appoint a new trustee should a member of the SMSF declare bankruptcy, and there would also be no question as to who is the rightful owner of the assets.
- You do not need to possess shares in the corporate trustee in order to comply with the superannuation laws; nevertheless, you must be a director of the corporate trustee. Your spouse or the trustee of a discretionary trust may own any shares in the corporate trustee.
If your trust has discretion,
- The arrangement outlined below should lessen the possibility that assets kept in a discretionary trust may be subject to creditor claims:
- A corporation shall serve as the trust’s sole and exclusive trustee, acting in no other capacities.
- Either you shouldn’t serve as a corporate trustee director or you should be one of two or more directors. For instance, you and your spouse (or another relative) and/or a professional advisor could serve as the directors (e.g. your accountant or lawyer).
- If you do own shares in the corporate trustee, it should only be a negligible percentage (less than 10%), if at all.
- Either you shouldn’t be a trustee or, if you are, you should be one of at least two trustees who must agree on all decisions. For instance, you and your spouse (or another relative) or a professional advisor could serve as the appointers (e.g. your accountant or lawyer).
- You shouldn’t be the trust’s default capital or income beneficiary.
- You shouldn’t get distributions from the trust that show a pattern of distributions or right to an ascertainable proportion of income; instead, you should be one of many beneficiaries of an unconstrained class.